Thursday, October 15, 2015

RBA's Financial Stability Report voices concerns:

Reserve Bank of Australia in its latest financial stability review report points to some countries  such as Brazil, India, Indonesia and  have increased their foreign currency borrowings in recent years. 
"Depending on whether and how they hedged, the profits of some corporations might come under pressure because of domestic currency depreciation... and slower economic growth."

The Report also points out that increased exposures of advanced economy investors to emerging market corporations and sovereigns in recent years may be a channel through which financial stresses in emerging markets spill over to advanced economies.


Liquidity risk might be underpriced by some investors.

There is apparent over-investment in some sectors of the Chinese economy such as real estate and heavy industry
Risks in China are particularly prominent for highly leveraged firms, including some firms in the oil and gas industries that are exposed to a decline in energy prices and construction firms that have raised significant foreign currency denominated bond funding in recent years.
Many Chinese local governments have large debts, and land sales account for a sizeable share of their revenues

(Note: Emphasis ours) 
Reference: http://www.rba.gov.au/publications/fsr/2015/oct/pdf/global-fin-env.pdf

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